October 2, 2007: (Wichita, KS):  Is this payday lending?  

The Boeing Wichita Credit Union introduced this week their "salary advance program" that offers payday loans of up to $500 at an annualized percentage rate of 36%.

Gary Regoli, chief executive of the $499 million credit union, told the Wichita (Kan.) Eagle that the credit union wanted to offer its members "a method of obtaining small loans at a reasonable cost." 

The program offers up to $500, not to exceed 20% of a member's monthly salary. The annual interest rate is 36 percent, which amounts to $15.29 on a $500 loan, said Keenan Bender, vice president for consumer and indirect lending at the credit union.  Bender notes that payday loan companies typically charge an annual interest rate of around 400 percent.

Boeing members taking a salary advance have 30 days to pay the loan, and may not borrow again until the prior advance has been paid. If a member takes out more than three of these loans, they will be asked to attend credit counseling each time they take out another salary advance.

The Federal Deposit Insurance Corp., a bank regulator, earlier this year created guidelines for a small-dollar, low-interest loan program. Banks that participate in the program can receive "favorable consideration" from the FDIC when they are examined for their compliance with the Community Reinvestment Act.

Traditionally, credit unions have not engaged in payday lending.  Boeing, however, may not be the first credit union to attempt small balance salary advance loans.  Bob Thurman, president of Credit Union of America, said his $240 million institution began a "second chance" loan program over the summer. Members who use such a loan are also required to complete an online class to provide financial education and limited credit counseling.  

"We think financial education is the key solution... to change those financial habits," Thurman said.

Source: The Wichita Eagle

 

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